COVID 19 home office deductions for tax time

To start off with, there are some rules about deductions.

You must have spent the money on something that is related to you earning money. So if you got reimbursed by your work or you were given a work item or equipment by your employer – THEN YOU CAN’T CLAIM IT!

I put that in capitals because a lot of people get into trouble with this one. You can, however, claim a deduction if you were not reimbursed – but you were instead given an allowance to cover expenses.

The reason for that is because you have to include that allowance in your tax return as part of your wages. So from the tax-man’s point of view it all works out even.

The other thing you MUST keep in mind is that you have to keep records.

This blog is mostly about special deductions put in place because of COVID 19. But you can still claim all the normal deductions as well – so they are in here too.

Many deductions apply to everyone working from home but some are specific to certain industries or working arrangements. It is really worth your while to have a competent tax agent go over your tax return for you to make sure you don’t pay too much taxes.

For a very long list of industry specific deductions, consult the ATO’s “Occupation and industry specific guides.”

Modern accounting software makes bookkeeping very easy but taxation itself is a difficult and complicated beast and it is very easy to pay more tax than you need to.

Or worse, inadvertently pay too little. Any tax agent can tell you stories of trying to get a payment plan in place with the ATO after a client has shot themselves in the foot after doing their business taxes themselves and ending up with a huge bill (it’s amazing how little sense of humour the ATO has about debts).

COVID 19 tax deductions

Many of us (including Wealthpath Accountants) have been forced to work from home over the past few months because of restrictions put in place due to the pandemic. While it can be fun working in your pyjamas while the kids run around you like crazy people – it has meant a lot of extra expenses for many of us.

Things like computers, printers, scanners, cameras (for Zoom), furniture and more. Most of us are also consuming electricity, internet, stationary and other things specific to our occupation. So it’s only fair you get a deduction.

What you can’t claim for

Basically, if you would be paying an expense anyway – then you probably can’t claim it. So things like rent, mortgages, water or rates can’t be claimed (there are some exceptions – consult a tax agent). You also can’t claim for things like coffee, milk, sugar, biscuits and normal household stuff like that.

Once again, you can’t claim it if your employer paid for it or reimbursed you for it.

There are two ways (and the COVID 19 way) to calculate expenses. You can use any of the three methods. Which one you choose depends on you, your circumstances and how much work you want to do.

The shortcut (COVID 19) method

Expenses you can claim for

  • You can claim up to $300 on any single item.
  • You can claim depreciation on assets worth more than $300.
  • You can also claim for the household costs associated with doing your job from home.

This is a special measure available because of the pandemic and is only available from March 1 to June 30 of this year. It’s very easy and it doesn’t require you to have a specific work area (like an actual “home office”).

It’s also good because the criteria is pretty relaxed. Just make sure you really do work from home and really have incurred additional expenses. You only need to have had some of these expenses. These expenses include (to quote from the ATO website).

  • electricity for lighting, cooling or heating and running electronic items used for work (for example your computer), and gas heating expenses
  • the decline in value and repair of capital items, such as home office furniture and furnishings including capital items that cost less than $300
  • cleaning expenses
  • your phone costs, including the decline in value of the handset
  • your internet costs
  • computer consumables, such as printer ink and stationery
  • the decline in value of a computer, laptop or similar device.

But if you use the shortcut method you can’t use any other deductions methods for the period. In other words – shortcut method only.

How you work out what to claim is to add up all the hours of work you did at home between 1 March and 30 of June and multiply by 80 cents. So, for example, if you worked 100 hours you can claim for $80.

In your tax return include the amount in “Other Work Related Expenses” and use “COVID-hourly rate” in the description field.

REMEMBER, you have to keep records of work hours. It can be a roster you did yourself in Excel, a time sheet or even a diary. But you need some record of what hours you worked.

There are two other methods you can use to claim deductions if working from home and these are what people normally used before COVID 19.

Fixed rate method

Pretty self explanatory. You can claim 52 cents for every hour you work from home. Again, you have to keep records of your work hours. But you can use a diary of a four week period to show your normal pattern of work at home (but if your work patterns are very disjointed you will need further records).

But to use this method you have to have a dedicated space in your home for work – a proper home office or the like.

You can claim some other things on top (phone and internet expenses for example). But you need to hang on to receipts and bills for anything you claim. Consult a tax agent for complete picture of what you can and can’t claim. Or consult for more info.

Actual cost method

This one is the most detailed method and lets you make very sure you get to claim everything you possibly can. It’s quite onerous to do as you need to keep detailed records of all your expenses and do calculations (including the need to take into account the effect of other members of your household on what you can claim).

While you don’t have to have a dedicated work area – there isn’t much point to using this method if you don’t have a dedicated office because that will cut down on a lot of stuff you can claim.

But it does let you claim for a whole lot of things. If you are interested in this method, the ATO does have a MyDeductions tool as part of the downloadable ATO app. You can read about it HERE.

To see a full outline of what the Australian Tax Office have to say about deductions you can make if you work from home – go to “Home office expenses” on the ATO website.

Also consult: “Working from home during COVID-19”